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Solera National Bancorp Announces 3Q, Nine Months of 2016 Financial Results

LAKEWOOD, Colo., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Solera National Bancorp, Inc. (OTC:SLRK), the holding company for Solera National Bank, a business-focused bank primarily serving the Denver metropolitan area, today reported financial results for the third quarter and nine months of 2016.

Highlights for the quarter ended September 30, 2016 include:

  • Eight consecutive profitable quarters
  • Net income of $266,000, or $0.10 per share
  • Return on Average Assets and Return on Average Equity of 0.73% and 4.96%, respectively
  • Net loan growth of $7.51 million, or 8.3% versus linked-quarter
  • Phil Randell joins the board of directors

For the three months ended September 30, 2016, the Company reported net income of $266,000, or $0.10 per share, compared to net income of $322,000, or $0.12 per share, for the three months ended June 30, 2016, and $649,000, or $0.24 per share, for the three months ended September 30, 2015. For the nine months ended September 30, 2016, Solera reported net income of $1.04 million, or $0.38 per share, compared with net income of $1.46 million, or $0.54 per share, for the nine months ended September 30, 2015. Third quarter 2016 results include approximately $100,000 in legal expenses incurred in defending a lawsuit brought by the Company’s former CEO. In third quarter 2015, the Company’s noninterest income included a one-time bank owned life insurance benefit of $293,000.

Martin P. May, President and CEO, commented: “The Company is performing well, delivering our eighth consecutive quarterly profit. We continued to grow our loan portfolio both organically and through the purchase of an additional participation interest in a pool of rehabilitated federal student loans. Additionally, we added talented business development officers to the team this quarter. Kreighton Reed and Susan Rawley will focus on growing our core deposits and generating new business lending opportunities. Finally, we are excited to have Phil Randell join our board of directors as we benefit from his 37 years of commercial banking experience in the Denver market.”

Operational Highlights

Net interest income after provision for loan and lease losses was $1.07 million for the quarter ended September 30, 2016, compared to $957,000 and $1.12 million in the quarters ended June 30, 2016 and September 30, 2015, respectively. Net interest income after provision for loan and lease losses for the nine months of 2016 was $3.07 million, compared to $3.21 million in the nine months of 2015. The Company recorded no provision for loan and lease losses in 2016 compared to a $50,000 credit to the provision for loan and lease losses in the third quarter 2015.

The Company's net interest margin in third quarter 2016 was 2.96% compared to 2.87% in the linked-quarter and 3.19% in the third quarter 2015. The Company's net interest margin for the nine months of 2016 was 2.98% compared to 3.15% in the nine month of 2015. The decline in net interest income and net interest margin for the nine months of 2016 compared to the nine months of 2015 is largely attributed to a 13 basis point increase in the cost of funds due to a shift from less expensive savings and money market accounts to more expensive, longer-term time deposits.

Total noninterest income in third quarter 2016 was $96,000 compared to $126,000 in second quarter 2016 and $407,000 in third quarter 2015. The decrease versus the linked-quarter is due to lower gains on the sale of available-for-sale securities. In third quarter 2015, the Company’s noninterest income included a one-time bank owned life insurance benefit of $293,000. Noninterest income was $464,000 for the nine months ended September 30, 2016 compared to $670,000 for the nine months ended September 30, 2015.

The Company continues to diligently manage expenses. However, third quarter 2016 was adversely impacted by legal expenses of approximately $100,000 incurred to defend a lawsuit brought by John Carmichael, a former CEO of the Company seeking a severance payment after his for-cause termination. Total noninterest expense of $897,000 in third quarter 2016 compared unfavorably with $761,000 in the linked-quarter and $874,000 in the third quarter of 2015. For the nine months of 2016, noninterest expense was $2.49 million compared to $2.42 million for the nine months of 2015 principally due to higher legal expenses.

The Company continued to record no income tax expense due to the utilization of available net operating loss carryforwards.

Loss Contingency

In August 2015, Mr. Carmichael filed a breach of contract lawsuit against Solera National Bank and Solera National Bancorp, Inc. The case proceeded to trial in September 2016 and resulted in a jury verdict awarding Mr. Carmichael a severance payment of 1.99 times his annual salary totaling $427,850. A dispute remains as to whether Mr. Carmichael is also entitled to the value of 10,000 shares of Solera National Bancorp, Inc. common stock as of his termination date. Additionally, a calculation for pre-judgment interest has not been determined. Final judgment has not yet been entered in this litigation.

It is the Bank’s understanding that regulatory approval is required to ensure that a golden parachute payment to Mr. Carmichael would not violate federal law. The Company did not record a charge to earnings this quarter for this loss contingency as we are unable to calculate a reasonable estimate of potential loss and there is a reasonable probability that the Company will not receive regulatory approval to pay the judgment given recent case law. We anticipate receiving a determination from regulators before year-end.

Balance Sheet Review and Asset Quality Strength

Total assets of $149.28 million at September 30, 2016 increased from $142.84 million at June 30, 2016 and $139.45 million at September 30, 2015. The increase versus the linked-quarter was due to strong growth in gross loans.

Net loans, after allowance for loan and lease losses, were $98.48 million at September 30, 2016 compared to $90.97 million at June 30, 2016 and $82.15 million at September 30, 2015. Organic net loan growth was $2.70 million during the third quarter of 2016 from loan originations of $5.57 million offset by payoffs and pay downs totaling $2.87 million. This growth was supplemented by the purchase of an incremental $5 million participation interest in a pool of rehabilitated student loans. The outstanding balance of rehabilitated student loan pools total $14.73 million at September 30, 2016 and continues to be an attractive alternative to purchasing bonds.

The allowance for loan and lease losses at September 30, 2016 was $1.58 million, or 1.58% of gross loans, compared to $1.58 million, or 1.70% of gross loans at June 30, 2016, and $1.61 million, or 1.92% of gross loans at September 30, 2015. The decline in the allowance for loan and lease losses as a percentage of gross loans is primarily due to the $14.73 million participation interest in a pool of rehabilitated student loans that comes with minimal risk of loss given the U.S. government guarantee.

Total investment securities available-for-sale were $36.32 million at September 30, 2016 compared to $36.16 million at June 30, 2016 and $42.73 million at September 30, 2015. Investment securities held-to-maturity of $4.5 million remained unchanged at September 30, 2016 compared to June 30, 2016 and increased $750,000 compared to September 30, 2015.

Total deposits at September 30, 2016 were $122.13 million compared to $117.02 million at June 30, 2016 and $113.19 million at September 30, 2015. Time deposits increased $11.79 million versus the prior year due to the Company’s efforts to attract longer-term deposits through both retail and wholesale channels.

The Company continues to experience sound asset quality metrics outperforming its peer group. At September 30, 2016, the Company had no non-performing loans, non-performing assets or other real estate owned. Total criticized assets increased modestly to $6.52 million at September 30, 2016 from $6.19 million at June 30, 2016 and $5.63 million at September 30, 2015.

The Company had no past due commercial loans as of September 30, 2016. However, $4.29 million of the student loan participation pool were 30 days+ past due at September 30, 2016 of which $3.46 million were 90 days+ past due. The student loans are backed by an approximately 97.5% guarantee of the U.S. Treasury under the Higher Education Act of 1965. This guarantee includes all principal and interest so net credit losses in this portfolio are expected to be minimal. Additionally, the Bank purchased this pool at a discount making the Bank’s maximum exposure to credit losses slightly less than 1%.

Capital Strength

The Company’s earnings continue to generate capital, and its capital ratios are well in excess of the highest required regulatory benchmark levels. As of September 30, 2016, the Bank’s Tier 1 leverage ratio was 13.2%, Tier 1 risk-based capital was 19.1%, and total risk-based capital was 20.4%.

Tangible book value per share, including accumulated other comprehensive income, was $7.80 at September 30, 2016, compared to $7.75 at June 30, 2016 and $7.17 at September 30, 2015. Total stockholders' equity was $21.49 million at September 30, 2016 compared to $21.37 million at June 30, 2016 and $19.84 million at September 30, 2015. Total stockholders' equity at September 30, 2016 included an accumulated other comprehensive gain of $89,000 compared to a loss of $175,000 at September 30, 2015 as a result of an increase in the fair value of the Bank's available-for-sale investment portfolio due to a decrease in longer-term interest rates.

May concluded: "The Company has now generated consistent core earnings over the past two years. The Bank has excess capital to leverage, our asset quality remains solid, and we operate in a vibrant market. We are making the necessary investments in our business development team and technology platforms, including the planned roll out of mobile deposit capture. This will make banking with Solera more convenient for all of our clients. We are well positioned to continue building shareholder value."

About Solera National Bancorp, Inc.

Solera National Bancorp, Inc. was incorporated in 2006 to organize and serve as the holding company for Solera National Bank, which opened for business in September 2007. Solera National Bank is a community bank serving emerging businesses primarily in the Front Range of Colorado. At the core of Solera National Bank is welcoming, inclusive and respectful customer service, a focus on supporting a growing and diverse Colorado economy, and a passion to serve our community through service, education and volunteerism. For more information, please visit http://www.SoleraBank.com.

This press release contains statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements contained in this release, which are not historical facts and that relate to future plans or projected results of Solera National Bancorp, Inc. ("Company") and its wholly-owned subsidiary, Solera National Bank ("Bank"), are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. We undertake no obligation to update or revise any forward-looking statement. Readers of this release are cautioned not to put undue reliance on forward-looking statements.

FINANCIAL TABLES FOLLOW

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
($000s) 9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015
ASSETS
Cash and due from banks $825 $678 $521 $749 $644
Federal funds sold 1,755 3,130 1,740 365
Interest-bearing deposits with banks 261 261 751 750 750
Investment securities, available-for-sale 36,324 36,159 43,752 48,374 42,733
Investment securities, held-to-maturity 4,500 4,500 4,500 4,500 3,750
FHLB and Federal Reserve Bank stocks, at cost 1,027 853 860 874 941
Gross loans 100,336 92,749 80,029 82,124 83,768
Net deferred (fees)/expenses (270) (201) (54) (15) (6)
Allowance for loan and lease losses (1,584) (1,577) (1,557) (1,518) (1,609)
Net loans 98,482 90,971 78,418 80,591 82,153
Loans held for sale 1,039
Premises and equipment, net 1,861 1,884 1,902 1,918 1,955
Accrued interest receivable 768 616 531 570 542
Bank-owned life insurance 4,464 4,433 4,401 4,369 4,565
Other assets 765 731 1,793 599 1,047
TOTAL ASSETS $149,277 $142,841 $140,559 $146,073 $139,445
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits 5,189 4,156 4,069 3,954 4,362
Interest-bearing demand deposits 6,997 7,913 7,644 8,405 6,524
Savings and money market deposits 38,558 36,798 38,151 42,320 42,706
Time deposits 71,382 68,156 64,435 66,160 59,594
Total deposits 122,126 117,023 114,299 120,839 113,186
Accrued interest payable 144 127 112 88 102
Short-term FHLB borrowings 1,125 450
Long-term FHLB borrowings 4,000 4,000 5,000 5,000 5,500
Accounts payable and other liabilities 390 317 333 309 370
TOTAL LIABILITIES 127,785 121,467 119,744 126,236 119,608
Common stock 27 27 27 27 27
Additional paid-in capital 27,160 27,149 27,143 27,137 27,130
Accumulated deficit (5,628) (5,894) (6,216) (6,670) (6,989)
Accumulated other comprehensive gain (loss) 89 248 17 (501) (175)
Treasury stock, at cost (156) (156) (156) (156) (156)
TOTAL STOCKHOLDERS' EQUITY 21,492 21,374 20,815 19,837 19,837
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $149,277 $142,841 $140,559 $146,073 $139,445

SOLERA NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Nine Months Ended
($000s, except per share data) 9/30/2016 6/30/2016 3/31/2016 12/31/2015 9/30/2015 9/30/2016 9/30/2015
Interest and dividend income
Interest and fees on loans $1,144 $1,011 $1,054 $1,060 $1,106 $3,209 $3,177
Investment securities 242 249 292 278 231 783 766
Dividends on bank stocks 12 11 10 11 12 33 35
Other 2 4 4 8 3 10 7
Total interest income 1,400 1,275 1,360 1,357 1,352 4,035 3,985
Interest expense
Deposits 315 298 294 284 263 907 755
FHLB borrowings 18 20 20 21 23 58 75
Total interest expense 333 318 314 305 286 965 830
Net interest income 1,067 957 1,046 1,052 1,066 3,070 3,155
Provision for loan and lease losses (50) (50)
Net interest income after provision for loan and lease losses 1,067 957 1,046 1,052 1,116 3,070 3,205
Noninterest income
Customer service and other fees 28 24 24 25 28 76 85
Other income 32 32 42 44 334 106 405
Gain on loans sold 125 125
Gain on sale of available-for-sale securities 36 70 51 6 45 157 180
Total noninterest income 96 126 242 75 407 464 670
Noninterest expense
Employee compensation and benefits 410 376 406 410 422 1,192 1,171
Occupancy 59 56 65 52 82 180 151
Professional fees 129 31 71 39 49 231 166
Other general and administrative 299 298 292 307 321 889 928
Total noninterest expense 897 761 834 808 874 2,492 2,416
Net income $266 $322 $454 $319 $649 $1,042 $1,459
Income per share $0.10 $0.12 $0.17 $0.12 $0.24 $0.38 $0.54
Tangible book value per share $7.80 $7.75 $7.54 $7.18 $7.17 $7.80 $7.80
Net interest margin 2.96% 2.87% 3.09% 3.10% 3.19% 2.98% 3.15%
Efficiency Ratio 79.59% 75.12% 67.42% 72.08% 59.13% 73.79% 65.39%
Return on Average Assets 0.73% 0.91% 1.27% 0.89% 1.86% 0.96% 1.38%
Return on Average Equity 4.96% 6.11% 8.93% 6.43% 13.34% 6.55% 10.03%
Asset Quality:
Non-performing loans to gross loans % % % 0.16% 0.30%
Non-performing assets to total assets % % % 0.09% 0.18%
Allowance for loan losses to gross loans 1.58% 1.70% 1.95% 1.85% 1.92%
Criticized loans/assets:
Special mention $1,984 $1,967 $3,137 $1,242 $638
Substandard: Accruing 3,935 3,627 2,975 2,400 3,589
Substandard: Nonaccrual 131 139
Doubtful 116
Total criticized loans $5,919 $5,594 $6,112 $3,773 $4,482
Other real estate owned
Investment securities 596 597 1,136 1,140 1,144
Total criticized assets $6,515 $6,191 $7,248 $4,913 $5,626
Criticized assets to total assets 4.36% 4.33% 5.16% 3.36% 4.03%
Selected Financial Ratios: (Solera National Bank Only)
Tier 1 leverage ratio 13.2% 13.8% 13.5% 13.2% 13.1%
Tier 1 risk-based capital ratio 19.1% 18.6% 19.4% 18.8% 17.3%
Total risk-based capital ratio 20.4% 19.8% 20.7% 20.0% 18.5%

Contact: Martin P. May, President & CEO (303) 937-6422 -or- Melissa K. Larkin, EVP & CFO (303) 937-6423

Source:Solera National Bank